1. Price Stability
Average level of prices in the economy is neither increasing nor decreasing.

2. Consumer Price Index
A number used to compare the average level of prices for a number of typical items bought by an urban family. (US Labor Department Bureau of Labor Statistics)

3. Inflation
A sustained rise in the average level of prices.

4. Deflation
A sustained decline in the average level of prices.

5. Rate of Inflation _________________________ _ X100 Earlier Years CPI
Recent Year CPI – Earlier Years CPI
_________________________ _ X100
Earlier Years CPI

7. Limitations of the CPI
1. You may not buy the particular goods on the CPI.
2. It only considers good that are bought and sold in the marketplace.
3. It doesn’t consider the quality of goods.